Zhejiang Risun Intelligent TechnologyLtd's (SHSE:688215) Solid Earnings May Rest On Weak Foundations

The market for Zhejiang Risun Intelligent Technology Co.,Ltd's (SHSE:688215) stock was strong after it released a healthy earnings report last week. Despite this, our analysis suggests that there are some factors weakening the foundations of those good profit numbers.

View our latest analysis for Zhejiang Risun Intelligent TechnologyLtd

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Zhejiang Risun Intelligent TechnologyLtd's profit received a boost of CN¥3.5m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Zhejiang Risun Intelligent TechnologyLtd.

Our Take On Zhejiang Risun Intelligent TechnologyLtd's Profit Performance

Arguably, Zhejiang Risun Intelligent TechnologyLtd's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Zhejiang Risun Intelligent TechnologyLtd's true underlying earnings power is actually less than its statutory profit. The good news is that its earnings per share increased slightly in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. When we did our research, we found 2 warning signs for Zhejiang Risun Intelligent TechnologyLtd (1 can't be ignored!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of Zhejiang Risun Intelligent TechnologyLtd's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.